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Tax credits: Education tax credits
 Education
doesn't just make you smarter, it's a smart way for you to save
money on taxes. Taxpayers may be eligible for tax credits for expenses
they pay for higher education for themselves and their dependent
children.
The Hope Scholarship credit
The Hope
credit is available to students -- who are enrolled on at least
a half-time basis in a degree or certificate program for any portion
of the year -- during their first two years of post-secondary education.
This credit can save you money, but it's non-refundable.
That means it might reduce your tax to zero but that's the limit.
The credit applies only to tuition and fees -- not to books, dormitory
costs or other living expenses.
The Hope credit is provided on a per-student basis.
And it's phased out if you exceed cerain earning limits.
The Lifetime Learning Credit
The
lifetime learning credit lives up to its name. It covers college
juniors, seniors, graduate students, adults returning to college,
and less than half-time students are eligible.
In fact, even if you're long out of school you can
take this credit to help offset the cost of a non-college course
you take that's designed to help improve your job skills. Similar
to the Hope credit, the Lifetime Learning tax credit is available
for tuition and required fees less grants, scholarships, and other
tax-free educational assistance.
The maximum credit is determined on a per-taxpayer
(family) basis, regardless of the number of post-secondary students
in the family, and is phased out at the same income levels as the
Hope Scholarship tax credit.
Families will be able to claim the Lifetime Learning
tax credit for some members of their family and the Hope Scholarship
tax credit for others who qualify in the same year.
How to claim the credits
You can figure the amount of your education credits by completing
Form
8863. Use Part I for the Hope credit and Part II for the lifetime
learning credit.
In both parts, you enter the student's name and taxpayer
identification number (usually a Social Security number) and the
amount of qualified expenses paid during the tax year. You then
complete Part III to compute the amount to on your Form
1040 or Form
1040A. (You can't claim this credit if you file Form 1040EZ.)
Attach the completed Form 8863 to your tax return.
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